This will help a lot. Also Erik for further elucidation.
The article you provided that was written by Erik T. is truly a wonderful even excellent article and should be a must read by all wanting a comprehensive read of the state of affairs we find our world in.Erik left open for our consideration a lot to think about and contemplate. Well written for sure.
Thank you
BOB
Thanks for reviewing the whole article… I thought maybe you got hung up on the China angle, which was mentioned in the very small excerpt I published, but is not really the focus of the article… It is not so much about China "stealing" the reserve currency as it is about that slot being ours to lose… and lose it we will at this rate.
Jim, I realized how abrupt I sounded and it was unintended. Erik really went at this very intelligently and I just realized how critical I sounded without fully saying what I felt about his article. It is first rate and so is Eriks work.Be Good
BOB
Another great article. I had to read the following excerpt a few times since I was confused in the wording:
"The same holds true for oil exporting countries. If they converted all their dollar revenues back into their own currencies, doing so would make their currencies more expensive against the dollar. That would make their exports less attractive because, being priced in dollars, they would fetch lower and lower prices after being converted back into the exporting nation’s domestic currency."The less attractive/lower prices threw me off, but assuming other currencies and the price per barrel remain constant/competitive in real prices it makes sense. I always have to run the exchange conversions in relation to price a few times in my head to get it right. Just a thought, the reference to "reckless" spending may not be reckless at all but "inevitable" spending in keeping with the paradox of thrift as well as the need for funding military action to maintain the reserve currency status. Regardless, unfortunately it ends badly for all scenarios.
Thank You
So the guy who is paid to patrol the parks on cold winter nights does nothing to protect the resources of the park? A few tears won't hasten the regrowth of that stump, and the wood being freshly cut, much of its fuel value will be wasted just to vaporize the sap. For one night's warmth, years of tree growth disappear in toxic smoke, probably in some absurdly inefficient fireplace. That poor "poacher" will return night after night until the forest is gone. And what will he burn NEXT winter? Banknotes, maybe. (Weimar marks were more valuable as fuel than as currency, according to the Wikipedia article on hyperinflation.)
If the forest tract was privately owned, would the owner be justified to use deadly force to protect it? Now is the time to establish a legal foundation for the defense of "property essential to sustainable life", for killing my tree today may threaten the lives of my family one, ten, or one hundred years from now.
Thanks for the many kind words here.
The real question we in the PO camp must ask ourselves is whether or not to trust our own data.
Like Chris, I'm very fond of using the WEO 2009 chart because it shows the decline of fully 62mmbpd by 2030, and it makes a very persuasive case.
But wait a minute… Don't we all agree here that U.S. government data is suspect? People like Chris and I tend to take something like the 2009 WEO report, and conclude "These people are conservative and vested in protecting the status quo, so if even THEY are saying this stuff, it MUST be true!"
But what if the data upon which we base our "realistic" projections is no more "realistic" than the readily available data now saying that shale oil & gas solves everything? How do we know that 60+mmbpd is a real number, when we are so quick to dismiss other U.S. government data which because it is biased in the opposite direction, we are quick to view with suspicion?
I don't think we know. Perhaps Chris has done much more work than I have, and has independently verified the 2009 WEO chart with his own original research. But I doubt it. More likely, Chris, like me, feels inclined to put more faith in what seem to be more "honest" numbers than the ones we know are phony. But the point is we don't know. Maybe the 62mmbpd decline figure was the inflated fantasy number, and in reality the 5mmbpd from the shale plays will solve everything!
Personally, I'm still willing to bet with my wallet that Chris and I are right, and that the situation is worse than the official story is telling us. But the point is, we don't know. The people like Chris and myself who are standing up saying "Hey! This is crazy!" are working from other people's data. We assume it's right when it jibes with our intuition and personal biases, and we refute it when it contradicts what we believe intuitively. But the reality of the situation is still that nobody has the resources to do adequate original research to really know for sure. We're just doing our best to figure out which "official" data is real and which is not.
Erik
…thank you for this. I was initially trying to prod for new informational source and delivered it badly. I so agree however with yours, Chris's numbers. I basically look at a long term trend line as confirmation for my beliefs about Oil and as you know that is basically straight up for some years now. Projecting out I just don't see the flow rate at the wells even coming close to satisfying demand.Just a terrific report Erik and after I realized my error in not stating this fact I wrote about it. Sometimes I get stuck on a thought,and unintent ionally I cut short a review. It can be a silly point too. Everything today seems silly to me though. Action is all I want to give us something before the lights go out. Use oil wisely and build something out of it.
All DATA is not to be believed as perfect, and trusting you and Chris to make sense of best guess estimate is nice when doing the math and seeing what I am seeing.
Best Regards
BOB
…too as I read your article so while it seemed I centered on China the fact is I see all these countries as a "KaBoom" moment setting off very uncertain times. Hell, I see Iran as the greatest threat to grinding all commerce to a halt world wide and might be the best example of the Oil price spike you were referencing. It's what I visualized as I read your article.
In reviewing the names of countries I provided I am certain of this: All their data is contrived. I also have housing crisis in Australia, Canada and just everywhere I see serious problems and just shake my head at what is at stake in the not to distant future. Frankly it is mind numbing research if just one major world economy but when it is all the great world economies in the same state of affairs , and the major issue being the printing of "thin air money" seems balanced throughout as they war to be the exporting nation. We all can't be that I am certain of that.
OK, time to crash now and needed to get all of what I was thinking of out so an understanding of what I was thinking while reading your report is clear.
Again, Thank you
BOB
http://stgeorgewest.blogspot.com/2013/01/detonating-japanese-debt-time-bomb-with.html
http://www.resilience.org/stories/2013-01-15/why-is-the-economy-shrinking-richard-heinberg
Erik,I'll use a story that I've told on here before, but it apply's to this conversation.
At one of my 4th of July parties a few years back, I asked a high ranking military officer (General) from the Pentagon:
"Is Peak Oil Real?"
His Answer (Paraphrased):
"Does it really matter? If we say it's real, it is."
What this means is, it doesn't matter whether the #'s are right or not, the government and military are working off of the basis that Peak Oil is real. Which means that the public should be working from the same thought process.
And again, whether Peak Oil is a real phenomenon or not, the Military says it is, and that's how it will play out, so plan accordingly.
Chris,
I generally agree with everything you wrote in this article. The exception is shale gas.
Working as a solar energy project developer and wanting to understand shale gas inpacts better, I organized a session at last years NESEA BuildingEnergy conference on shale gas and searched for the best answers I could find.
One part of the answers I was seeking came from Tim Bigler, Senior Market Strategist for Natural Gas Operations for Hess. I asked him about prices being, as you suggest, well below the cost of development and extraction. He explained that most of the dry gas in shale fields is accompanied by "natural gas liquids" which are tied in the market to petroleum prices, so that as long as petroleum prices remain high, the wells can be profitable even if the natural gas prices remain pretty low.
The other big question was one inspired by a question key to your long term analysis, net energy return on energy investment. The only person I could find who has done such a study is Mike Aucott, a Research Scientist for the New Jersey Department of Enevironmental Protection, who did an analysis on EROI for Marcellus shale gas. He started the study expecting to find that the cost of extraction had minimal energy returns relative to energy invested. He included energy inputs including the embodied energy in steel distribution system piping, the fuel to truck water, the embodied energy in the concrete for well casings and pretty much everything he could identify associated with Marcellus gas extraction. His finding was that for every one unit of energy invested, 68 units are returned from Marcellus gas fields, which beats every other form of fossil fuels and many renewables. This is a guy who started the Philadelphia Ecology Action Club back in the 1970s, spent his career in the environmental protection game and can only be described as an ardent environmentalist, as well as a thorough and honest PhD scientist.
My take away from those two presentations is that shale gas will be a game changer for quite some time, perhaps not a hundred years, but long enough to have gas soften the economic impacts of the energy shortages we all expected in the near future.
Fred
Chris, the OECD-driven forecasts I've seen put 2030-2040 oil cost in the range of $125-175/bbl (2012 dollars). Can the global economy grow at a reasonable rate paying $175/bbl for oil? How high can our global median household energy expenditure get before GDP growth is wiped out by the cost of achieving that growth?
We know that economics is a key driver of innovation. While I'm convinced that fossil oil is our #1 structural issue moving forward, I'm not convinced that it's a deal breaker. The more carefully I look at the future of PV electricity (and the range of emerging renewables in general), I think we may be incorrectly estimating our future net energy mix.
With experience in electrical engineering and economies of scale, offshore mfg dynamics, and cost-demand trends, I think there’s a high probability that, by 2040-2045, PV electricity will be cheaper than gas-coal-nuke for >80% of the global population who use electricity. I’m happy to go into detail on that, but in short I think a conservative trend line puts 2040 median installed PV electricity at roughly $0.04/kwh. Double that for grid delivery, assuming a local grid exists. Combine this with emerging renewables and I believe by 2080 the industrialized world will be using 80% renewable electricity.
In short, I think we’re underestimating future electrical economics driving fossil oil alternatives. Most (certainly not all) fossil oil applications can be converted to electrical analogs, and I believe 2010-2080 will see a profound acceleration in this trend. Mobility and storage R/D will continue to attract increasing dollars in all sectors: govt, industry, academics.
One forecast puts 2035 as the year when hybrid-EV-PI vehicles start to outsell IC. I think it will be sooner, perhaps 2025-2030, via (currently unanticipated) accelerations in efficiencies, range, charge-times, and net cost. I’m assuming similar oil-to-elec crossovers in other applications – agriculture, military, etc. Ultimately, I think 120M b/d 2040 oil forecasts are too high, and that affordable renewable electricity will accelerate innovation, displacing oil demand faster than most are anticipating.
That said, the planet will likely have >500M IC vehicles still running in 2040. I think 2000-2100 will be a profoundly difficult era of human history. The good old days of cheap energy are gone, but I do see an era of cheap energy returning. It’s those 100 years in the middle – especially the critical period around 2030-2060 – that will challenge us to our core, but I have a "reasonable" confidence that economics will drive innovation that will help us survive this difficult century.
I know that I am working with imperfect data and I do not necessarily trust any one aggregation source over another. I think they tend to borrow from each other with the IEA using EIA data and so forth.
Much of the data requires accurate reporting from all of the individual countries that produce and export oil, something I am not entirely comfortable trusting.
But we work with what we've got.
The Sweetnam graph showing declines from existing fields is one that I tend to trust because the implied rate of decline is 4.08% putting that right at the low end of the reputable global estimates of decline which means the graph, if anything, is conservative.
The reason that I am comfortable trusting the global estimates of decline is because I have gathered and analyzed lots and lots of data at the single field level and am familiar with those individual decline rates. Generally speaking, among the giant fields that produce more than half of all the oil on a daily basis, the onshore fields decline at a rate of around 4% while the offshore fields decline at around 10% per year.
Again, if anything, the assumed rate of 4.08% is conservative.
When the IEA studied the issue, they came up with a weighted average rate of global decline for existing fields of 5.1%
CERA, the eternal optimists, came in with a 4.5% estimate.
Other published estimates have ranged from 5.5% to as high as 8%, a figure I think is too high.
All that you have to do in order to 'believe' the Sweetnam graph is to believe that currently producing fields are cranking out 85 Mbpd and that the weighted average rate of decline for those fields is 4.08%.
If you are more comfortable tweaking either of those parameters upwards or downwards, that is a perfectly reasonable thing to do.
For example, if we take the IEA estimate of 5.1% and insert that into Sweetnam's graph then we arrive at 2030 with only 37 Mbpd of production from existing fields making the total modeled shortfall into a bit over 68 Mbpd.
At a 6% rate of decline the shortfall would be a whopping 73 Mbpd.
And what if new technology and better ways of squeezing more from existing reservoirs comes along and the rate of decline can be brought all the way down to 3%? Then the shortfall is still some 52 Mbpd, a big improvement, but still quite a challenge that is roughly an order of magnitude larger than even the most optimistic tight oil estimates.
Bottom line: Unless and until something really stupendous comes along, like another Ghawar under the arctic or decline rates magically shrink towards zero, there's still quite a challenge in front of us that will have to be settled by reducing demand. Will that be via price rationing or some other form of rationing?
[quote=Fred Unger]Chris,
I generally agree with everything you wrote in this article. The exception is shale gas.
[/quote]
Fred,
I have not yet commented on the EROEI of shale gas, which is actually quite good as you say, keeping my analysis and comments so far to the declining net energy from oil production efforts.
My next report is on shale gas and my main conclusions are that it is a quite valuable resource, has a very favorable energy return, but it is not yet useful as a transportation fuel and probably won't be over the next 10 to 20 years given the reality of energy transitions. Also the total amount of the resource was overhyped at the beginning and new estimates of proven and probable has been trimmed a bit by the USGS as solid data about production profiles from existing wells especially in the more mature plays (Barnett and Haynesville) generally do not support the initial industry EUR claims.
One recent example is that operators in the Eagle Ford shale are still claiming as much as 850,000 BOE per well whereas the Society of Petroleum Engineers (SPE) after looking at the actual production data from mature wells determined that the mean EUR per well in the Eagle Ford is 206,600 BOE and the median EUR is 160,500 BOE.
Oops. Guess what? In a boom there are operator claims and then there's reality. History suggests that operators can be trusted…to always inflate their numbers. That's always been true in the oil patch. I have handy mental discounting machine that always divides operator claims by a whole number, like 2 or 3.
But even still these are great plays and much will change for industrial and electrical consumers of this fuel, but they will not alter the trajectory of the transportation fuel market which is an entirely different beast.
…an issue going forward. Why I'm shaking my head is when I read Mauldin (who I respect very much) talking as if he has such great faith. Well, I will too when I start seeing gas pipelines, windmills, solar, hydro, and geothermal every darn where. In addition it sure would be nice to have a priority on developing the battery storage system necessary to gather and store. Right now these are scattered about here and there.When I do see a windmill or solar I get a great feeling of relief but it is short lived only because it's not near enough.
I still see no movement until Debt is destroyed, and the status quo is removed so that new thoughts can come forward for the change that will be required to build the next generation economy. The central banks and our energy problem are part and parcel the same issue. One props the economy and the other tears it down. So I see the China's, Europe's, Japan's, the U.S. as all connected.
Regards
BOB
I agree this is the crux of the issue, and I agree that the future decline rate will be at least 4.08% if nothing changes. But I'm not quite ready to throw all my faith into the 4% decline rate because I am coming around to the view that it can and will be mitigated.
Consider the following "news story":
HOUSTON – Saudi Aramco announced today that it would acquire 100% of Chesapeke Energy. The embattled company (Chesapeke) lost considerable share value despite its many successful projects employing horizontal drilling and hydraulic fracturing technologies following several management scandals. An Aramco representative said, "Basically, or strategy is to acquire the excellent technology capabilities and re-deploy them in order to mitigate production declines in our existing "Elephant" fields in KSA. We're going to give all our major oilfields a facelift which will include drilling horizontals and using fracking extensively to increase flow rates from existing oilfields, and our acquisition of CHK today gives us the core competence to achieve these goals.
No, that's not from the AP - I just made it up. But the point is, it could easily be true. So far as I can tell (PLEASE correct me if I'm wrong, folks) fracking and horizontal drilling should be able to markedly increase flow rates from existing "Elephant" fields. The reason it hasn't been done yet is that most people don't "believe in" Peak Oil.
Yeah yeah, I know… Increasing the flow rates the way I describe is just asking for more trouble later because the rate of decline, once the limits of fracking are reached, will be much higher. But if the world followed that kind of thinking, we wouldn't be in this fossil fuel predicament to start with.
I contend that there is a CRITICAL bit of information, which unfortunately I don't know how to research. The question we need to ask is not what decline rate Sweetnam's chart uses or what anyone else has projected. That's not what matters. I contend the core question is this:
Assuming that fracking, horizontal drilling, and any other technologies can and will be used to the extent that it is economic to do so in order to mitigate decline of existing oil resources, what will the net decline rate be after considering the mitigating effects?
For starters, it's not even possible to answer that question without knowing (or projecting) the oil price, since the ability to mitigate depends on the cost of mitigation divided by the incremental production being economic. But I contend it will be, at least to some extent.
So the way I see this going down is approximately as follows:
For now, most people deny PO is real
A big price spike wakes them up. Probably in the $150-$200 range
The industry responds by employing fracking and lateral drilling to improve flow rates from existing MENA region fields.
This takes time and the oil market goes wild for a while until the mitigations are felt
Oil prices come back down (but not all the way) once the mitigations are effective and flow rates increase.
Eventually, a sudden-stop sort of energy crisis happens, but of course we wait until the 11th hour to form a plan for what to do about it.
My frustration is that I can't figure out where to research this more thoroughly. Some of the questions I ponder:
Is anyone currently considering or making plans to use these techologies on the aging elephant fields?
How long will it take to ramp up and how much will it cost, expressed in $ per bbl of incremental production resulting from the mitigation?
How long is the lead time to manufacture the drilling equipment, deliver it, etc. In other words, if the Saudis decided tomorrow to use these technologies aggressively to mitigate flow rate declines, how long would it take them to order the equipment, put it to use, and actually see results in flow rate increases?
Anyway, my point is simply that it's a moving target. When those 4%+ decline rates start to actually happen for real in a measurable way, there will be PLENTY of energy and resources devoted to solving the problem. So far as I can see, there are no true solutions, but there are plenty of ways to kick the can down the road, and delay the onset of the actual crisis. Hmm. Sounds familliar! 
Erik
Erik, it's my impression that fracking is used only in "tight" rock formations, although I know they use horizontal drilling in deep sea wells. I question whether either method would be productive in traditional land based fields.
http://en.wikipedia.org/wiki/Hydraulic_fracturing
In the Bakken decline rates are about 80% after two years. With oil at about 90$/bbl, these wells barely break even and for production to be maintained will require exponential growth in the number of well after some peak, which is probably not far off.
http://www.theoildrum.com/node/9506
[quote]
MAJOR FINDINGS FROM THE STUDY
All charts in this post are clickable for a larger version.Findings from this in-depth study of time series for production from some individual wells:
- Presently the estimated breakeven price for the “average” well in the Bakken formation in North Dakota is $80 - $90/Bbl In plain language this means that presently the commercial profitability for new wells is barely positive.
- The “average” well now yields around 85 000 Bbls during the first 12 months of production and then experiences a year over year decline of 40% (+/-) 2%
- The recent trend for newer “average” wells is one of a perceptible decline in well productivity (lower yields)
- As of 2007 and also as of recent months, the total production of shale oil from Bakken, has shown exceptional growth and the (relatively high) specific average productivity (expressed as Bbls/day/well) has been sustained by starting up flow from an accelerating number of new wells
- Now and based upon present observed trends for principally well productivity and crude oil futures (WTI), it is challenging to find support for the idea that total production of shale oil from the Bakken formation will move much above present levels of 0.6 - 0.7 Mb/d on an annual basis.
The content for this post was first posted in two parts (with data as of June 2012) on my Norwegian blog; “Fractional Flow” Part 1 and Part 2.[/quote]
Doug
Erik,
Check out this article in Wired, which suggests Shell beleives 300 billion barrles can be recovered from existing wells.
http://www.wired.co.uk/news/archive/2011-12/09/300-billion-barrels-of-oil
Thanks for the link Fred. I interpret Shell to be saying,"We have used up this oil field, but it still has a lot of potential for any buyer"
I have a motorcar like that. It still has a lot of potential for a young buyer.
How does heating the viscous oil affect the EROEI?
I see that they say that the process is only viable with high oil prices. That problem is easily solved. We can print more money,
Why is it that you only show on these forums when you feel you need to either, disagree with what CM says, or correct him (correct meaning: in comparison to your views)
Why don't you become a regular contributor instead of coming when you see something you disagree with?
I would imagine I'm not the only one that sees this issue. Maybe you should go back into your own archives, and study your own posts. I honestly cannot remember you interacting (within the last 2 years) with this community unless you're correcting, or disputing a CM story/post.
I'm all for correcting "group think". But you're showing more than that in your agenda.